Pandemic proves why we must reduce our dependence on China

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Hongzhi Gao, Te Herenga Waka – Victoria University of Wellington and Monica Ren, Macquarie University

When it comes to our economic over-reliance on China, New Zealand consumers need look no further than their most popular big box chain, The Warehouse. The familiar ‘big red shed’ sourced about 60 per cent of its home brand stock from China in 2017 – and a further $NZ62 million in products directly through offices in China, India and Bangladesh in 2019.

In Australia, many major chain stores as well as online retail giant are in a similar position. Reliant on China for much of what they sell, including exclusive home-brand items, they are part of what has been described as the world’s most China-reliant economy.

The COVID-19 crisis has thrown Australian and New Zealand businesses’ dependence on China into stark relief. With countries reportedly competing with and undercutting each other to secure desperately needed medical supplies from China, many are now waking up to their economic exposure to a single manufacturing giant.

Understandably, discussions about creating a ‘trans-Tasman bubble’ between Australia and New Zealand have focused on kick-starting economic activity in the short term, particularly through tourism. But both countries also need to take a longer-term view of boosting economic activity – including through increased manufacturing and trade integration.

Read more: High-tech shortages loom as coronavirus shutdowns hit manufacturers

The statistics support this. In 2018, 20 per cent of global trade in the manufacturing of ‘intermediate’ products (which need further processing before sale) came from China. Chinese manufacturing (including goods made from components made in China) also accounted for:

  • 35 per cent of household goods
  • 46 per cent of hi-tech goods
  • 54 per cent of textiles and apparel
  • 38 per cent of machinery, rubber and plastic
  • 20 per cent of pharmaceuticals and medical goods
  • 42 per cent of chemical products.

Australia and New Zealand are no exception, with China the number one trading partner of both. Australia earned 32.6 per cent of its export income from China in 2019, mostly from natural resource products such as iron ores, coal and natural gas, as well as education and tourism.

Inside a Bunnings store in Australia: many of the shelves would be empty without goods sourced from China.

From New Zealand, 23 per cent of exports (worth $NZ20 billion) went to China in 2019, and much of the country’s manufacturing has moved to China over the past 20 years. The China factor in New Zealand supply chains is also crucial, with a fifth of exports containing Chinese components.

Supply shortages from China
The world is now paying a price for this dependence on China. Since the COVID-19 outbreak in early 2020 there has been volatility in the supply of products ranging from cars and Apple phones to food ingredients and hand sanitiser packaging.

More worryingly, availability of popular over-the-counter painkiller paracetamol was restricted due to Chinese factory closures. This is part of a bigger picture that shows Australia now importing over 90 per cent of medicines and New Zealand importing close to $NZ1.59 billion in pharmaceutical products in 2019. Overall, both countries are extremely vulnerable to major supply chain disruptions of medical products.

For all these reasons, a cooperative trans-Tasman manufacturing strategy should be on the table right now and in any future bilateral trade policy conversations.

Read more: Australia depends less on Chinese trade than some might think

Opportunities for Australia and NZ
Rather than each country focusing on product specialisation or setting industrial priorities in isolation, the two economies need to discuss how best to pool resources, add value and enhance the competitive advantage of strategic industries in the region as a whole.

Currently, trans-Tasman trade primarily involves natural resources and foodstuffs flowing from New Zealand to Australia, with motor vehicles, machinery and mechanical equipment flowing the other way. Manufacturing is skewed towards Australia, but closer regional integration would mean increased flows of capital, components and finished products between the countries. We have seen this already in the primary and service sectors but not much in the manufacturing sector, especially from New Zealand to Australia.

Medical technologies and telecommunications equipment manufacturing (both critical during the pandemic) stand out as potential new areas of economic integration. In that sense, it was heartening to see major medical tech companies such as Res-Med Australia and Fisher & Paykel Healthcare in New Zealand rapidly scale up their production capacities to build respiratory devices, ventilators, and other personal protective equipment products.

Read more: China turns on the charm and angers Trump as it eyes a global opportunity in coronavirus crisis

These brands enjoy a global technology edge, smart niche positioning and reputations for innovation. We need more of these inside a trans-Tasman trade and manufacturing bubble.

China still vital but balance is crucial
Key to successful regional integration will be the pooling of research and development (R&D) resources, mutual direct investment, subsidising R&D and manufacturing in emerging markets with profits from another (such as China), and value-adding specialisation in the supply chain. For example, Tait Communication in New Zealand recently invested in a new facility based in one of Australia’s largest science, technology and research centres.

Together, we can make a bigger pie.

None of this means cutting ties with China, which will remain the main importer of primary produce and food products from Australasia for the foreseeable future. And Chinese exports will still be vital. Fisher & Paykel Healthcare sells its products in about 120 countries, for example, but some of its key raw materials suppliers are Chinese.

Getting this dynamic balancing right will be key to Australia and New Zealand prospering in the inevitably uncertain – even divided – post-pandemic global business environment. And you never know, maybe one day we’ll see a ‘made in Australia and New Zealand’ label in the aisles of The Warehouse and Bunnings.The Conversation

Hongzhi Gao, Associate professor, Te Herenga Waka — Victoria University of Wellington and Monica Ren, Lecturer/ Assistant Professor, Macquarie University

This article is republished from The Conversation under a Creative Commons licence. Read the original article.

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Written by The Conversation


Total Comments: 123
  1. 0

    So much of this dependence is because Australian owned businesses wanted a cheaper source of product. We, the consumer, didn’t necessarily buy any cheaper because of that.
    The modern approach to pricing is to charge what the market will pay. Capitalism 1.01.
    Companies all over the World have moved to buy product, be it components or complete items, from China and that is the cold hard truth.
    What to do about it is really tricky as China buys so much from Australia and we are possibly the most vocal supporter of free trade around the World as our agricultural industry depends on it.
    In light of that be careful what you wish for because if it comes true it may not give the result you expected.

  2. 0

    YES, I WOULD PAY MORE FOR GOODS MANUFACTURED OUTSIDE OF CHINA, so long as hopefully the markup wouldn’t be massive and the quality would be of good standard. In fact, I always look for products that are of non China manufacture/produce when shopping and if an alternative item is available at a reasonable price (even though higher than the China made item), I will buy the non China made product. In any case, there are so many cheap and nasty products that are manufactured in China that come with a low price tag, but purchasing them is akin to being penny wise and pound foolish ….I have learnt that to my own detriment. And YES, let this be the start of Australia becoming more resourceful, being independent, open up manufacture here in Australia once again as it was years and years ago. We have learnt a bitter lesson indeed; just as we were resilient with the recent bushfires and oh so many other challenges in our country, so should we be equally if not more resilient in strategies (certainly would have to be long term) to establish manufacture and supply independent of this country. Prime Minister Scott Morrison said: “Australia must come out from under the doona”; lets hope that our leaders and we as a nation, can rise to this challenge without China covertness.

  3. 0

    I try to avoid Chinese products and always check Australia made website to see if there is a local alternative, prices does cause an issue at times but not always, especially if you after quality and guarantees of the product. One thing that needs to be looked at is how can China and Hong Kong send items cheaper using our postal system but an Australian person or business has to pay a lot more, you only have to look at ebay to check the prices, and it goes for books sent from overseas mainly the UK, you get free shipping but in Australia you have to pay at least $9.

  4. 0

    I have been sating this for years — and have avoided buying from anything O/S at all — very hard to do in clothes and such but I will NOT buy anything other than Aussie in food — and that is Aussie GROWN AND MADE AND OWNED

    Alo be aware that NZ can and does import and relabel — so NZ stuff could come from God knows where

    In the 1940s and 50s we made everything here AND everyone had jobs too, it is about time it happened again!

    • 0

      PlanB you are correct about foodstuffs sneakily being re-routed into Australia from New Zealand. I think it’s unacceptable that New Zealand allows itself to be complicit in this devious practice. Check everything.

    • 0

      It’s not only foodstuffs from NZ that are relabelled. We were told that Lazy Boy furniture was made in NZ but labels inside when we turned it upside down were Chinese.

    • 0

      Yes, PlanB. We need our Government to introduce proper food labelling!
      I cannot understand why they resist!
      Proper labelling means country of origin, in the same size lettering as every thing else on the packet!
      No good (for us oldies) putting a label on a can if we cant read it! Thus is done for ONLY ONE REASON!
      Re the New Zealand fiasco: Some well know Aussie brands of frozen peas have “Made in New Zealand from local and imported products” some have “Grown in New Zealand”

      The “Chinese Model” is to undercut the competition, or provided it free, then make the $$$ in other ways .
      We hear a lot about people using “Zoom” to keep in touch during the isolation.
      There are (and have been for years) many other products that do the same job, except they cost money, AND they are secure…
      So the “Chinese Model” is to provide it free, and make the $$$ by selling the information they get from it. Now, users of Zoom, what information have you given the Chinese?
      Once installed on your computer, it has access to everything on it. Contact lists, picture files, facebook information, location information, google (and Chrome) history…
      That information is very valuable to advertising companies (and less honourable establishments). Ever wonder why these apps are free?

    • 0

      Yes I agree Plan B. As you say many years ago it worked well we were self reliant and that was good for everybody, but then the unions, and workers started pushing for higher and higher wages, because they couldn’t see any further than the end of their noses Look how many businesses have moved to Asia. I remember Toyota saying they can manufacture 4 cars in Asia for the cost of manufacturing one in Australia, I think that says it all.
      It would be marvelous if we could see “Made in Australia and New Zealand” on a label. And yes I would be prepared to pay more for goods manufactured her, and I am on Age Pension.

    • 0

      Trouble is On the Ball — these companies get their stuff made for sweet BA in other slave counties but they still charge us wounded bull prices so it is THEM that is making the money — this has to stop as well as the blasted governments selling us out to line their own pockets —

      I am willing to pay more for AUSSIE made grown and owned and I do when I can

      I must say that if there had been no Unions we would have still been working for nothing — like Howards wants like when he brought in ‘work choices’

    • 0

      “Work choices” is a joke, if you don’t agree with the choice you get sacked.

    • 0

      Australian-owned companies also re-label cheap Chinese clothing. They order in say 500 blue school shirts (in varying sizes) for about AUS$1 each, landed, and have their own brand with “Australian made” labels (made in China) sewn into the collar. Then they embroider the school crest onto the chest pocket (supplied separately) then sew that pocket on, which is enough for them to be able to legally claim “Australian made”.

      I’m fairly sure Oz is as bad as NZ when it comes to legal cheating.

    • 0

      Hoohoo, you are probably right. Country of Origin rules are based on ‘value added.’ If you buy t-shirts for $1.00 its not too difficult to add value by 100% to comply.

    • 0

      The problem is this – my business’ income has been reduced to 1/5th of what it was ten years ago, due directly to cheap Chinese (& Pakistani & Vietnamese) imports.

      Of course, I can’t produce a quality plain tee shirt for less than $20 cost price, and that’s using cotton fabric from overseas (because there’s not a single manufacturing wholesale mill remaining in Australia, except for hosiery mills). The last Australian mill shut down in Melbourne over 15 years ago.

      But I’m proud to say my workers enjoy decent conditions and pay, unlike these poor workers from overseas in sweatshops.

      I think people need to make a moral decision when choosing cheap imports. Are these poor people’s jobs worth preserving? Is this the world we want to create? Don’t get me wrong, I feel very sorry for these poor slaves. This exposes the very ugly underbelly of capitalism at the life and death edge. Dog eat dog. Master and slave. Don’t kid yourselves it isn’t thus.

  5. 0

    Unions caused Australian manufacturing to disappear. When unions were greedily, short-sightedly, demanding excessively high wages for basic jobs, that’s when Australian manufacturing businesses started to fold. The car-building industry is a perfect example. And people will still buy cheap stuff from China unless all Chinese imports are hit with a mighty big tariff. After all this, we now know what we have to do to protect our economy: BUY NOTHING CHINESE. Buy Australian where possible,and/or look carefully for imported goods sourced from Western countries.

    • 0

      It isn’t all the unions fault….it’s called free enterprise!

      They act on behalf of union members (Aussie workers) and just the same as anyone else, they are entitled to bargain for the best price – in this case the only thing they have to bargain with is their labour.

      Ask any company rep who works to achieve the best price he or she can get for their company….Woolworths just one example. Alan Joyce is another. No way that man is worth what he’s paid – and he’s just one of thousands – and at least the worker pays for his own lunch!

      Here’s the deal…if the worker dropped their wage by half tomorrow, how many company execs or tradespeople (you know the ones – those who complain incessantly that workers wages are too high) – would follow suit? My bet is absolutely none!

      Their own worth is based upon what a worker gets – so in essence the more any union pushes for a pay raise for it’s members, so also do the ‘union bashers’ enjoy the benefits.

    • 0

      Maybe that is why we have to pay more for goods in Australia because of the CEO’ s inflated wages?

    • 0

      Car line workers priced themselves out of a job? Give yourself an uppercut! How dare they want a fair standard of living. Unbelievable.

    • 0

      Same old same old Brissie Girl, American propaganda, u must be a trump clone, – do you for a second believe that working people in Australia are now better off without unions?

    • 0

      Brissiegirl. Bad management begets bad unions and we have had bad management in spades. A $1 million part salary or bonus for a CEO would give 1,000 workers an extra $20.00 per week but few companies today employ so many but when was the last time if ever that you heard a board saying they couldn’t afford to pay their CEO another $1million?
      In my experience management rarely draws out the real value of their workers, the people on the shop floor who have a far better idea of how to improve the products and efficiency than anyone on the highly paid board. I have visited hundreds of companies where senior management don’t even know how to talk to their workers. Workers have a far greater stake in the future of the company than any executive sitting on a multi-million nest egg and an obscene termination bonus.

    • 0

      Brissiegirl, Unions are the only thing that have protected working class Australians from slavery sweatshops like in Asia. Do you really think Australian workers should have to compete with peasants on less than $2ph? Do you?

      Or worse, some Indians are born into bonded slavery, because their parents are indebted to the corporate landowner who took over their fields. It often starts when the peasant farmer borrows money from Big Ag chemical companies for the latest engineered seed to crop. (Sold to them cheap at first, just like drug dealers). Unfortunately, the seed is sterile so they have to keep on buying the patented seed year after year, so more and more debt. Then they have to buy the herbicides and pesticides, specifically designed for the crop to resist. Eventually the bank forecloses and they lose the land their ancestors have farmed for centuries. Yet they still own the debt and so do their children.

      I’ll name names: Bayer, Monsanto, Roundup. These incredibly successful companies are the monsters ruining our Earth and people.

    • 0

      Those farming areas in India that got swindled by Bayer/Monsanto have high incidents of suicide too, but do they care, of course not, a greedy selfish dangerous toxic company who is ruining the planet and making people very sick.

  6. 0

    Australia, New Zealand, and most of the rest of the world became reliant on low quality cheap Chinese products and complacent to the fact that the CCP and PLA had another agenda: political and economic domination.
    The China virus has exposed the CCP and PLA for what they are: Only interested in making money at expense of others. What other ethical moral nation, fully knowing that a deadly virus is spreading would come to Australia, a country they had already infected, buy up 90 tonnes of critical medical supplies, ship them back to China, and then try to sell the supplies back to Australia at a higher price.
    Globalisation is a good thing. However, it needs to be reassessed and reset to function to the benefit of the world.

    • 0

      Don’t forget also that the plane which landed with 90 tonnes of over-priced previously sourced critical medical supplies was told to bugger off back to China but not without a full load of our baby formula.
      Australians should be outraged, and not going to take it any more.

    • 0

      I’m not too sure about Globalisation being a good thing. It’s a great thing for multinationals and their CEO’s, that’s for certain.

      But is it a good thing that Singer sewing machines were manufactured specifically for children to operate? (guess where).
      Is it a good thing that Australian clothing manufacturers are competing with those Chinese companies who exploit child labour?

      Governments always talk about a level playing field, but I’m yet to see it when it comes to developing countries who are overpopulated and don’t allow Unions to regulate conditions for workers.
      Even the USA, the greatest capitalist country in the world, subsidises their farmers and farm produce. This has happened for decades, before Trump ever mentioned protectionism. The European Union does the same thing with farm produce.

      Australia seems to be the only sucker first world country that actually applies the “level playing field” rule and that’s why Riverina farmers pulled out hundreds of acres of orange groves some years ago, because Californian oranges (including the freight!) were cheaper for Woolies, Coles, etc. It’s a joke. Like the Emperor’s New Clothes (invisible)

      I betcha some other country (maybe even the USA?) will sell (subsidise) their barley to China to capture that market, now that China is threatening Australia with putting tariffs on Australian-grown barley.

  7. 0

    Reading most of the comments lets stick together and boycott all the cheap stuff coming especially from China. Hopefully the Federal Government will step up and stop the State Premiers from selling our houses, factories, etc to the Chinese. All students arriving from overseas on study Visa’s should be made to return home once they have completed their studies and if they still want to come back apply through the correct channels where hopefully the security checks etc will be more stringent.This will also help to give real Aussies jobs.

    • 0

      You have my vote Suddha!

    • 0

      You also have my vote Suddha

    • 0

      Suddha, many of the comments are knee jerk, but what are you saying about the students? – do we want them to pay for what we can teach them? or go elsewhere?

      Isn’t it a part of getting to know our huge manufacturing neighbour to take their children and show them our friendly and co-operative lifestyle? – And so keep our Universities functioning that our Govt does not seem to want to?

      Who wants to close down or warp our universities, ? the bloody Neo-Liberals! – who want everything judged by money, – each student, each exam, each teacher, – in the US, right down to the Primary kids, money money money. – we all need to think a bit more widely, – let’s not get sucked into Their greed, the Chinese are Saints in comparison.

  8. 0

    Main things that destroyed our manufacturing were the Whitlam Govt signing the Lima Agreement in 1975 (If you haven’t heard of it Google It) Plus Hawke /Keating dropping our tariffs dramatically, plus greed , shareholders wanting more profits so companies went offshore for cheaper labour. Unfortunately now it’s iriversible

    • 0

      You can’t say that Bazza!!! Whitlam and Hawke not doing their best for the worker? Never! (He says with sarcasm).

    • 0

      Globalism. Level playing field. All BS in my opinion.

      But do you buy that cheap Chinese rubbish made by poor peasants in sweatshop conditions?

      Money is the new religion for both Communism and Capitalism. People don’t count. We are the pawns that create their huge wealth – they couldn’t do it without us. Thank heavens for Oz Unions.

      And COVID may turn out to be a blessing in disguise now that people have been weaned off rampant consumerism. People are asking themselves “What is really important?” Relationships and the natural world is my answer.

  9. 0

    The solution would be to undertake a strategic analysis of all essential supplies and put a variable import quota on those items which we can make locally. This would provide a guaranteed market for Australian manufacturers but maintain overseas supply lines and keep the overall market competitive. The quotas could be varied depending on changes in local capacity. Yes we’ve got trade agreements all over the place but the world is moving towards self interest whether we like it or not. No reason for us to be the only clean skin. We should base all future trade agreements on reciprocity ie if you can act unilaterally to protect your own interests (eg any large Asian supplier) then so can we.

    • 0

      Good sentiment Viking, but wouldn’t it be better for our govt to subsidize our produce/products to the same level as the Chinese do for theirs?

      Expansive rather than contractive. Hey!.

    • 0

      Lookfar. Yes you could do that but a quota is effectively a user pays subsidy because it allows prices to rise but moderated by the comparative import prices. As a quota only allows a specified quantity to be imported which renders exporter subsidies ineffective whereas a manufacturing subsidy here might encourage the exporting nation to increase its exporter support. As we know, the selling prices on many items imported from China bear no relationship to the production cost so a local manufacturing subsidy would probably lead to only a slight reduction in importer margins.

      There may be several ways of going about it but like you and many more I’d just just love to see a return of of our manufacturing dignity.

  10. 0

    What a lot of racists, I spent as holiday in China some years ago, it was spotless – no litter, no people sleeping on the streets and people were friendly. Of course we all prefer to buy Australian made but a lot of us cant afford to and I have never had any problems with items made in Asia. I am far more concerned at our government being the mouthpiece of Trump who is trying to start world war 3 to cover his inadequacies and no I am not a labour voter

    • 0

      We are the lone voices. What Australian made products? I challenge the skeptics DO BUY AUSTRALIAN PRODUCTS ONLY.
      I am sure it is only talk.
      The Free Trade rule was and is imposed by us and US, get it?

    • 0

      This website shows some products.

    • 0

      How about the air pollution in China, Nikolai?

      I, too, am hugely concerned about our Australian Govt being a mouthpiece for Trump, especially considering his business operations in Russia. How this individual ever became President of USA is a blight on all Americans, even though Clinton received 3 million more votes than he did, but that’s the result when there’s no compulsory voting and powerful people can stop the poor from voting, which is happening right now as well. When Trump says such blatantly stupid things, on such a regular basis, we understand he’s talking to Trump voters, who, I’m sorry to judge, are plainly stupid or brainwashed.

      But you can’t say you’re too poor to buy Australian if you can afford to go on overseas holidays, Nikolai. I haven’t been overseas since the 1980’s but I still buy (and manufacture Australian-made goods!) when I can. It costs more but quality means value. I used to buy cheap toasters and kettles from K-Mart when I was young and penniless, but though I now pay 3-4 times more, these items last for 5 times longer AND I don’t have to go toaster- and kettle-free so often, until I rush out for a replacement.

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